Issues & Insights January 2007

When is a disaster a crisis?Chinese symbol for crisis

Uncertainty of outcome defines crisis, demands leadership

At 40,000 feet and traveling 640 kilometers per hour, if you fall out of an airplane without a parachute it is not a crisis.  It’s depressing, probably horrifying.  It might be a tragedy.  It certainly is going to become messy.  But a crisis?  No.

If you’re an astronaut trapped in a stricken spacecraft on the dark side of the moon watching the last molecules of air hiss out of a hole in the wall, leaving you exposed to the cold, harsh vacuum of space, it’s tragic.  It’s unfair.  It’s a disaster.  But, it’s not a crisis.

Now, if you’re the CEO of an airline that just let a passenger fall out of its London to New York red-eye – or the NASA Administrator facing down political critics at  a Congressional hearing into how two astronauts died on the moon – that’s a crisis.

What makes one thing a crisis and another thing “just” a disaster, catastrophe or horror?  One thing, perhaps more than any other factor, marks the difference:  options.

As anyone who has ever attended a crisis management seminar or read an article or book on crisis management will attest, popular wisdom has it that the Chinese symbol for crisis is comprised of the symbol for “risk” and the symbol for “opportunity”.  Whether the Chinese are really as wise as we believe them to be, or not, the fact is that risk and opportunity – together – are at the core of every crisis.

The Oxford English Dictionary defines crisis, in part, as “a turning point…”  Dictionary.com says crisis is “a stage in a sequence of events at which the trend of all future events, esp. for better or for worse is determined” 

When something horrible happens, it’s a disaster.  When something happens that may or not turn out horribly – that’s a crisis.  If you fall out of an airplane at 40,000 feet without a parachute, it’s not a crisis because you have no options.  You’re going down.  Hard.  Your friends and family will grieve, but there’s nothing you can do except make peace with your god.  If you’ve drawn your last breath on a stranded spaceship too far for rescue, it’s not a crisis because the outcome is certain.  You're going to be a dead hero.

On the other hand, if you’re the airline CEO and this horrific accident could (a) spell the end of your airline or (b) be just a very low point in the history of your airline, then you’re in crisis.  You have options.  How you lead your organization through the sequence of events that follows, making choices and taking actions to achieve option (b) and avoid option (a) will make the difference.  You have options. 

If you’re the NASA Administrator faced with (a) a sad day for NASA or (b) the end of manned exploration of space, you’re in a crisis because the outcome is uncertain.  You have options.

Because the outcome of a crisis is, by definition, uncertain, leadership in crisis is pivotal to success.  Strong, effective leadership will lead your organization to make the right choices at the right time, to efficiently execute the right tasks and to move it forward along the right path – earning the better destiny.  Poor or ineffective leadership will allow fate or competitive forces to eliminate choices until only one possible path remains.  At that point, the crisis is over – and you have failed.

It is critically important for leaders at all levels to recognize this fundamental element of every crisis:  in a crisis, you have it within your power to influence the outcome.  Good leaders will seize this opportunity, dust themselves off, assess their situations and say “follow me!”  They will make the best possible decision they can make at each decision point and will inspire others to follow them along the right path to the best possible outcome.  That is good crisis leadership.

What kind of crisis leadership are you capable of?

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Will DNA research slay the life insurance industry?

Biotechnology company PreMD Inc. has developed an exciting new test for the insurance industry.  By simply pressing a strip of tape to the palm of a potential client’s hand, then sending the tape to the laboratory for anaylsis, PreMD can tell an insurance company how likely it is their client will develop cardiovascular disease.  Using this information, the insurance company can then decide whether to sell the client a life insurance policy – and, if so, how to price it according to the client’s risk factors.

Insurance companies routinely test life insurance applicants for medical risk factors such as high cholesterol, HIV, hepatitis, etc.  Advances in DNA research are even more exciting.  The rapidly advancing front of biotechnology knowledge and capability heralds an era of unprecedented ability for insurance underwriters to better calculate the risk of insurance. 

Insurers, of course, want to know how likely it is the client will die during the term of the insurance coverage.  People with high risk factors may die earlier.  Therefore, they may not be a good bet for an insurance policy – or their premiums may have to be significantly higher than for someone less likely to die during the term.  Seems reasonable.

Insurance depends on uncertainty

Insurance companies are in the business of measuring risk and calculating probabilities.  When you buy a $100,000 – 10 year term life insurance policy for $1,200 a year, you’re betting up to $12,000 against a potential $88,000 gain that you’re going to die within the next 10 years.  The insurance company is betting a potential $88,000 against a possible $12,000 that you won’t.  Either way, it seems, you lose. 

Before it places its bet, however, the insurance company wants to know the odds it’ll win.  The insurer will analyze every possible piece of information it can get its hands on:  your age, gender, height, weight, ethnicity, lifestyle factors, medical history, blood chemistry, urinalysis and even DNA risk factors, as well as occupation and hobbies will be factored in.  These will then be compared to an actuarial database to calculate the specific probability you’ll die during the time period to be insured.  This probability will be used to decide if you will or will not be offered a policy and, if so, at what price in order to mitigate the insurer’s risk and provide for an acceptable profit.

But, what if your future health concerns were known?  What if there was little or no uncertainty in the equation?  What if the insurance company knew for a fact that you were going to die on January 12, 2012 from heart disease?  It's a rididculous extreme, perhaps, but for sake of discussion, what if they did? Would they write you a $1 million , 10 year policy?  The shareholders would hope not!  That would be a losing bet.  A truly crafty insurance company, though, might say “yes, we’ll write that policy” but price it at $1 million.  That way, they earn interest on your million before you die, then pay you off with your own money.  Good business for them.  But, would you buy a $1 million policy for $1 million?  Didn’t think so.

The point of much DNA research and much of the multi-billion dollar biotechnology and medical device industry is to develop better and better predictive tests.  The ultimate science fiction-like objective would be to pluck a hair from your head, pop it into a device and go “Hmmm…. Aha!  You will die from lung disease on Jan. 12, 2012.”  How realistic is that?  Probably not very – but we are beginning to come frighteningly close for some potential health hazards.  Who knows what future discoveries will enable?

What happens to the life and health insurance business as our ability to predict health outcomes becomes better and better?   Because the insurance business is so heavily based on calculating probabilities, it is dependent on uncertainties.  If the outcome is certain, there can be no insurance.  Consider:  what if the insurance company knew you would never develop a life-threatening disease?  Why, then you’d be an ideal customer!  All the insurance companies would be lining up at your door to sell you insurance you don’t need.  They’d be highly competitive.  Most would be willing to sell you a policy cheap, cheap, cheap – because they’d be assured of making good money since they’d never have to pay it out.  Good business for them. 

But, what if you also knew you’d never develop a life-threatening disease?  Or, what if you knew the insurance company would offer you a policy only if they knew you’d never cash it out?  Would you buy the policy?  Didn’t think so.

Taken to this ridiculous extreme, the life insurance industry’s lust for ever more accurate predictive technologies, and our fast-increasing ability to build those predictive technologies based on a growing understanding of genetics and health risk factors, the industry will eventually achieve a Catch-22:  it will only write policies for people who don’t need them – and people who don’t need policies won’t buy them.  End of the life insurance industry as we know it.

But wait!  You rightly point out that people often die through misadventure – in accidents or homicides – and not always from natural causes.  Quite right.

So, what?

So, the accidental death and dismemberment side of the insurance industry is likely to continue on its present course.  But the life insurance industry, which profits most from healthy people, will struggle.  If you’re a shareholder, perhaps it’s time to reconsider your investment plans for the mid to longer term.  Keep an eye on the rapid advancement of predictive health technologies and adjust your investments accordingly.  As the ability to predict health outcomes removes uncertainty from the actuarial calculation, the opportunity for short term profits may rise, but will fall in the longer term.  Without uncertainty, there can be no insurance industry.

How do we get ahead of this issue?

In order to get ahead of this issue, life insurance companies should become the standard-bearers for personal privacy issues.  The industry should be clamoring for mandatory privacy protections that would ensure neither they, nor their competitors, can ever be too certain about a client’s health.  Uncertainty must remain a healthy part of the insurance equation.  The industry should insist that advanced predictive technologies never be permitted for actuarial assessment and that firewalls surrounding health information be strengthened to ensure no private health information inadvertently falls into the hands of any underwriter. 

This means industry regulation and mandatory compliance.  Otherwise, any insurer could seize a short-term advantage by breaking the rules.  Unless the entire industry subscribes to the information restrictions, no individual company will be able to.  If ever there was an issue demanding “all for one and one for all” solidarity in the life insurance industry – predictive technology and patient/client privacy is it.

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TCG News

Mark Towhey speaks to international police chiefs

Talking Season

The Fall was "talking season" here at TCG, with our president on the road making major presentations to international conferences.  In October, Mark Towhey addressed the International Association of Chiefs of Police in Boston on the subjects of crisis leadership and crisis communication.

He was also a featured speaker at the National Tour Association's annual conference in Salt Lake City in November.  Once again, he spoke to travel and tour industry leaders about crisis communication and crisis leadership at it impacts their industry.

Website Re-launch

We re-launched our website on Dec. 31 with a bold new look and feel, as part of our re-branding effort.  Our services are more tightly focused than ever before on helping leaders make their organizations more resilient to major crisis - before, during and after a crisis strikes.

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Special Offer:  $1,200 Crisis Plan Review

January is traditionally a time to reflect on achievements, results and lessons learned from the previous 12 months and to develop action plans and objectives for the coming year.   As part of this process, consider taking a fresh look at your various crisis management plans.

Whether they're crisis management plans, crisis communication plans, business continuity plans, business resumption plans, disaster recovery plans, or what have you, we'll provide an expert, objective second opinion for you.

Our Crisis Plan Review service normally sells for over $1,500 but in the spirit of the holidays, we're discounting that price to just $1,200 (USD) until January 31, 2007.  That's a 20 per cent savings.

As part of the CPR, we will review your written or electronic plan documents and provide you with a detailed expert review of your plan - with specific commentary on strengths, weaknesses and areas for improvement.  We'll even provide recommendations on best practices ways address the gaps and shortfalls we identify. 

Can you think of a better way to invest $1,200?

 

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